Why is this relevant to Banks and Credit Unions? Well, for one, it validates other findings that suggest that most consumers hold less than $1,000 in deposits. But perhaps more importantly, it suggests that the vast majority of consumers are unlikely to be interested or approvable for the vast majority of products and services that Banks and Credit Unions wish to sell.

For example, we all recognize that Banks and Credit Unions typically have a good track record in lending to individuals with high credit scores, ample income, and high net worth — the traditional ‘A paper’ credit. On the other hand, Chief Credit Officers tend to frown upon applications that slip into the realm of ‘B paper’ or below which are the credit ratings occupied by the majority of Americans.

Serge Milman

Serge Milman is the Principal Partner of San Francisco, CA based SFO Consultants which provides Strategy, Finance and Operations Management Consulting services. He is also the Principal of Optirate – a blog dedicated to growth and profitability strategies for Banks and Credit Unions. Serge can be reached at info@SFOconsultants.com.

2 Responses to “Why Community Banks are Ill-Positioned to Serve the Cash-Less”

Credit unions are positioned better to offer low cost checking and reasonably priced personal loans and check cashing to keep these “at risk” consumers away from the wolves. Requires pricing at breakeven or minor loss-leader (if you count write-offs) but it is our mission. Lifting the sinking ship has a great chance to cultivate a member for life.

Phillip – Agree that Credit Unions can, and do, offer lower cost checking accounts. The challenge is that the vast majority of these accounts results in operating losses with little or no opportunity for revenue / profitability through cross-sell. Offering payday-like loans at slightly lower costs is certainly an alternative and many Credit Unions already do this, via 18% APR Personal Loans. Focus on C or D paper is not a bad strategy but it requires scale to cover high operating costs and defaults. With the exception of a few, Credit Unions lack scale and thus, operating inefficiencies, make this one of the programs that is difficult to execute without incurring non-recoverable losses.

Credit Union management needs to be very explicit about the members they wish to have in their Credit Unions, including the exchange of value. Relationships where the exchange is one-sided is unhealthy, and unlikely to last. Many Credit Unions are finding this out the hard way!

An effective and actionable strategy matters. Operational excellence is a must.